Posted by: Josh Lehner | October 27, 2020

Zoom Towns are Real (Graph of the Week)

Stories about pandemic migration and working from home abound, even as we are months away from any hard data. This can be a struggle, balancing these anecdotes and speculation when we lack any real evidence. And the issue isn’t that these things are not happening. They clearly are. The issue is that Oregon sees hundreds of thousands of people move every single year. What really matters is when any changes are widespread enough to be more than noise.

To that end, we just don’t know yet. We will get Oregon population estimates from Portland State in December, but need to wait until April for the full set of underlying data tables. And the 2020 ACS data won’t come out until September 2021.

The key question is to the extent we do see pandemic migration, will that be enough to offset the fact few people moved during the shelter in place phase of the cycle, let alone offset the traditional slowdown in migration during recessions? Statewide, our office does not believe so, but our forecast may be too pessimistic given this is not your normal business cycle. Plus regional patterns will always differ from statewide figures.

Our view is further clouded by the fact the DMV is appointment only these days due to social distancing. As such we have lost our traditional real-time migration indicator: surrendered driver licenses. That leaves us looking at things like home sales as a measure of mobility, even as it is hard to disentangle local moves vs out-of-state migration.

Here we see ongoing strength in housing due to the fact higher-income households have been less impacted by the recession to date, interest rates are at record lows, and there is the strong demographic tailwind of Millennials aging into their 30s and 40s.

Even so, all of these factors bring home sales nationally and in some popular metro areas to a point where 2020 will show solid to very strong gains. But there are some places experiencing eye-catching growth. Home sales are up double digits among Conor Sen’s “Zoom Towns” — popular, smaller, scenic areas from which workers can telecommute. Keep in mind that given the ongoing strong demand and pending sales numbers, the final year-end figures will be up even further across all locations.

UPDATE: The chart has been updated to reflect better Missoula home sales data. The previous chart showed 22% growth which was incorrect. The true number is 9.8% per local MLS statistics. A big thank you to Brint Wahlberg, a Missoula realtor, for spotting the error and correcting the data. My apologies for the error.

One of the key questions earlier this year was whether we would see people double down on existing patterns of migration and places to live, or whether we would see new patterns emerge. Keep in mind that it is still early in the cycle and the winds may change as it drags on, but early returns indicate we are doubling down.

Now, I want to touch on a couple related issues. The first is inventory, which is down about 40 percent a lot of places in Oregon, and 20 percent nationally. Normally inventory does not actually restrain sales. The main reason inventory is low is because sales are strong! But this year in some places it may actually be an issue. Take Hood River for example. You can currently count on your fingers the number of homes for sale, even at luxury price points. This extremely lean inventory is problematic for the market. But more generally, lower inventories make it a sellers’ market, and prices appreciate faster.

Second, I think the major increases in luxury homes are distorting some of the overall market figures. Some media articles out of Montana indicate the $1 million+ properties are a hot segment. In Bend, sales have been very strong above $750,000 with pending sales of $1m+ through the roof. Now, it’s hard to say that this means all that much for middle-income families, but it does drag up the average, and even the median home price due to a big compositional shift.

Third, it remains an open question as to what all these home sales actually mean for migration and population growth. Most buyers are usually local. They tend to be either first-time or move-up buyers. However a part of the strength is tied to migration as well. Increases of 10-15% in the Zoom Towns is not due to local demand alone. Although an added question is whether these sales represent true migration and population growth, or simply increased demand for second homes. That distinction may not matter for the housing market, but it does for the local economy.

Bottom Line: The housing market is among the strongest segments of the economy. Ownership is expected to remain strong due to demographics, low interest rates, and the nature of the cycle. Even so, popular, scenic areas have experienced an even greater influx of demand. Zoom Towns appear to be real and pandemic-related migration looks to be doubling down on existing patterns of growth.

Posted by: Josh Lehner | October 23, 2020

In the News: Oregon High-Tech

Yesterday Intel, the pillar of the state’s tech industry, announced their latest quarterly earnings and continued discussions on manufacturing challenges and the possibility of partnering with other firms for future production. See Mike Rogoway’s piece in The Oregonian for more.

This is something we recently discussed with our advisors as well and what it may possibly mean for not only the high-tech outlook in the state, but even the broader Portland economy. The upshot of their thinking is none of the potential changes are likely to happen overnight. What’s really a potential risk would be if, for whatever reason, the Portland region was no longer the main hub of research and development. It’s not just the direct manufacturing jobs that would be at risk, it would be all the engineering, management, office jobs and the like. To date there has been no discussion along those lines, which is encouraging. Plus the overall tech market looks to be strong in the coming years, helping support sales and activity.

With that in mind, it gives me an excuse to post a few charts on a Friday.

First, it’s always important to keep in mind that Oregon’s tech specialty has always been hardware, or tech manufacturing. The state has seen strong growth in software in the past decade, but that growth has largely matched national trends.

Second, a breakdown of tech jobs in Oregon by occupation shows that the manufacturing jobs that actually do the manufacturing, so-called production occupations, account for about 1 out of every 4 jobs. To the extent the vertically integrated business model that has served Intel (and Oregon) so well over time changes, the first impacts would potentially be felt among these jobs. That is, if the manufacturing of future chips is outsourced, one may think local production jobs would be lost. But as stated earlier, it’s really the broader cluster of occupations that comes with R&D and headquarter-type operations that accounts for the bulk of local employment.

This third chart drills down on these occupations for just Computer & Electronic Product Manufacturing, and the pure Software firms. It’s interesting to note that the manufacturers have just as many jobs in architecture and engineering, and computer and math occupations as do the local software firms. This is likely one reason Oregon does see some start-ups spin off, it’s because there is a large pool of workers with the skills and ideas to be able to do so.

Finally, just a reminder of what the outlook looks like. Our office expects tech manufacturing employment to hold relatively steady. It remains a key part of Oregon’s economy. The sector undertakes big investments every handful of years that help drive productivity gains not only in the industry but also in the statewide data. But, in keeping with the manufacturing story overall, those productivity gains do not tend to result in more employees. Or to the extent some firms are hiring, we know some of the other firms are downsizing, keeping sector employment relatively steady. The overall growth in high-tech jobs in Oregon will continue to be on the software side.

Note: this is an older, pre-COVID chart. Our office’s outlook for tech manufacturing remains relatively unchanged today, but we have seen some recent software job losses that aren’t reflected in this chart.

Posted by: Josh Lehner | October 19, 2020

COVID’s Impact on State and Local Governments

This started with a seemingly basic question: “Why is public sector employment down so much this year?” The normal pattern we see is that the public sector is more of a stabilizing force in the economy. Job losses and budget cuts come with a delay as it usually takes time for lower levels of economic activity to translate into fewer tax collections. Those impacts usually hit the budget the fiscal year after the recession starts. However, so far in 2020 local governments have shed nearly as many jobs as the private sector. Both the size of the losses and swiftness with which they came is highly unusual.

After digging into the data it is quite clear that the local government job losses are not a result of your standard budget cuts. That traditional recessionary dynamic is likely to come, but will hit next year, not this. The losses today are directly related to the pandemic and social distancing.

Most surprising are the declines in local education. Yes, bus drivers and lunch workers are impacted by distance learning. However the bulk of the declines appear to be teachers themselves. If all we did was switch from in-person to online schools, why are teaching occupations down double-digits? Some is likely due to lower enrollments — students switching to purely online options, homeschooling, or redshirting potential kindergartners. Some districts may be holding vacancies open in anticipation of future budget cuts.

Even so,the primary reason seems to be the lack of using substitutes. With online school, teachers feeling under the weather can better manage a few live meetings with their classes or send additional work remotely, whereas standing in front of the room all day is more challenging. Nationally, subs account for about 13% of all K-12 teaching jobs. Informal conversations with a few local districts confirms that sub use is down considerably, and really only used for durations lasting more than a day or two.

In terms of higher education, the impacts of the pandemic, social distancing, and online schooling are clear. There’s no sugarcoating it, enrollments across Oregon appear to be down double digits. Official counts will be available later this fall. Informal conversations indicate that full-time employee layoffs are minimal to date. Fewer adjunct instructors and professors are being used. The bulk of the layoffs are tied to student workers, recreational centers, dorms, student unions, and the like.

Besides education, the public sector does a lot of things. Employment here is down largely due to zoos, convention centers, recreation facilities, public pools, libraries and the like being limited during the pandemic. The losses in public administration are relatively small to date.

All of that said, there is still the traditional recessionary dynamic at play. Those impacts will largely come next year, not this. Depending upon a given jurisdiction’s population and economy, it may fare better or worse when it comes to local trends in sales, property and lodging taxes. These differences are already emerging in neighboring jurisdictions, across the state, let alone around the country.

The key question in the outlook is whether these traditional budget issues will be in addition to the pandemic and social distancing ones, or simply replacing them.

Full set of slides are below.

Posted by: Josh Lehner | October 15, 2020

Oregon Employment, September 2020

Yesterday we got the September 2020 jobs report from our friends at the Employment Department. The topline numbers continue to be good, or at least probably good enough. The recovery is likely self-sustaining even as it slows as expected. That said, it doesn’t mean we’re out of the woods yet. There remains a Great Recession sized hole left to fill. And remember, the recovery from the Great Recession was self-sustaining too, it was just stuck in a low gear and we grinded our way out over the course of a decade. Our office expects this recovery to be faster, and more complete but that is largely predicated on limiting the amount of permanent damage in terms of business closures and layoffs until the pandemic is managed and brought under control, and a medical treatment of some sort becomes widely available by the middle of next year.

As we’ll get into more in the coming weeks, a few things are emerging in the data. First is there is a clear gap when it comes to employment among women and men. Second, now that we’re in the seventh month — how is it only been seven months? — of the pandemic, we are starting to see a rise in long-term unemployment, commonly defined as six months or longer. Third, the virus remains in control. Yes we are learning to grow around the virus and resume some activities. However large swaths of the economy cannot recover until the pandemic is over. This includes some sectors you may not fully expect, like local governments.

Overall, job growth was decent in September. The state added 5,100 jobs. Normally that’s about as strong as you would ever see, but today it represents a gain about 1/3 as big as Oregon saw in July and August. Overall the state has now regained 45% of its lost jobs. This truly does remain good news overall, even if the path forward isn’t well lit.

I’m switching up this first chart to include our office’s forecast. We fully expect growth to slow further in the months ahead. I suspect that some of the slowing in September is fire-related in terms of less economic activity due to many of our friends and neighbors being evacuated and the smoke keeping the rest of us indoors. Not so much as jobs were cut outright, but more in the sense Oregon saw somewhat fewer gains than the average state. If true, that relative slowing vis-a-vis the nation should reverse in the October data. Even so, its important to keep in mind that the baseline outlook calls for more slowing in the months ahead. That doesn’t mean the recovery is in jeopardy, even if it will feel that way. The combination of any seasonal component to the virus, plus the seasonal issues related to the colder, wetter months when we are forced indoors more, plus some hangover from the lapse in federal aid, and that underlying traditional recessionary dynamic will all weigh on growth in the months ahead. After that, growth should pick up and, again, provided the permanent damage is fairly minimal, the overall recovery will be faster.

One silver lining continues to be that much of the job loss and corresponding increase in unemployment still looks to be temporary. The headline unemployment rate is back down to 8.0% and the core unemployment rate — a measure of permanent layoffs and damage — ticked down as well, even as it continues to be somewhat elevated. This is the part of the recovery that will take the most time, even as many of those on temporary layoff continue to be recalled.

As always, a huge thank you to Tracy Morrissette over at the Oregon Employment Department for his great work digging into the detailed data so we can look at core unemployment in Oregon. Thanks Tracy!

Finally in a good news/bad news update, we continue to see a split in labor market outcomes. Low-wage industries suffered the most during the shelter in place phase of the cycle, given the sudden stop nature of the shutdown. It is here that much of the job growth in recent months is taking place. This is good news as those workers are brought back following temporary layoffs. The bad news is that middle-wage sectors are only seeing very modest gains and high-wage sectors are not seeing any growth in recent months. They may not have suffered as much to date, but they’re also not bouncing back. This is a concern and likely speaks to more permanent layoffs in these industries. Keep in mind that job losses of 5% are more severe than Oregon suffered in the 1973, 1990, and 2001 recessions. Further research shows that many of these layoffs in middle- and high-wage sectors appear to be lower-wage workers within those industries. But overall, the slowdown in the September data is very clear in the chart below.

All told, Oregon’s economy continues to recover and heal. Employment is up and unemployment is down. The recovery is likely self-sustaining but it is expected to slow in the months ahead. The virus itself and the amount of permanent damage that accumluates will determine the overall strength and duration of the cycle. Stay tuned for more next week on some of the issues related to the gender gap and local governments.

Posted by: Josh Lehner | October 12, 2020

Economic Dynamism in Oregon

The key economic concern today is one of permanent damage. How many firms close and how many permanent layoffs occur? While much of the damage has been temporary to date, it’s that underlying traditional recessionary dynamic that will go a long way to determining how long the recovery takes. And in past severe recession in Oregon, like the early 1980s and the Great Recession, we saw both an increase in closures and a drop in new businesses forming. This prolonged the recovery process as it takes time to replace firms and rebuild the network of employees and supply chains in the broader economy.

Unfortunately we lack good, timely data on firm closures. It takes months to realize that a business is not reporting payroll, paying taxes, renewing business licenses and the like. What little information we do have shows closures are rising, but not yet considerably so. One reason may be that we are still early in this cycle, and firms do not close overnight when sales drop. They burn through reserves, maybe take out a loan, and then if those fail to tide the company over, then they close for good. Additionally, Oregon companies received $7 billion loans/grants from the Paycheck Protection Program and while that money is long gone, it was also $7 billion of temporary cushion.

What good, timely data we do have is about new businesses forming. This is one of the key metrics our office is following over on the COVID-19 tracking page. Here we see encouraging news to date. There has been no real drop-off in start-up activity in 2020. It may well happen as the cycle drags on, again it’s still early. But so far the data points toward a rise of business closures but no real decline in new business formation. While not good, this would still be better than those past severe recession, and be less of an drag in recovery.

The rest of this post comes from our office’s June 2020 forecast document, where we discuss some of the implications of firm closures and the broader issues at play. The slides at the end are a full update of these broader issues related to entrepreneurship, start-ups, closures, venture capital and the like. This is something we last really dug into on the blog more than 5 years ago. The update is largely based upon newly released, and revamped Census data on business dynamics.

Finally, the economy was already struggling with lower rates of productivity in recent decades. While an imperfect relationship, productivity gains are a key driver of employee wages and a rising standard of living. Many economists point toward the low rate of entrepreneurship as one key reason for low productivity growth. After all, new products and services are usually brought to market by young companies who seize the opportunity to improve efficiencies and generate profits.

COVID-19 may further entrench these trends. A byproduct here would be that the large businesses that have already won out in today’s economy may further strengthen their positions. Big companies generally have better access to capital markets to raise money to survive, while small firms rely upon the owner’s own worth, and programs like the PPP. Furthermore, benefits that workers generally want, particularly during a pandemic, such as health care, paid time off, the ability to work from home or remotely, and the like, are much more common among large firms than small. When combined overall, these issues may potentially paint a dark picture for small businesses, start-up activity, productivity, and ultimately for workers and job growth.

Posted by: Josh Lehner | October 1, 2020

Wildfires: Impacts in the Forecast

When the fires were raging and the state was blanketed in smoke, our office wrote about some of the implications and impacts associated with wildfires. We fleshed out the discussion in our forecast document (see PDF pg 11) and during our forecast release the other week. See that for the bigger picture perspective. Today I wanted to dig into some of the underlying details a bit further. Keep in mind we still do not know the full extent of the damage, or how things will play out over the next couple of years. But here is what we know now, and what we built into the forecast.

First, what makes this year’s fires different is the fact that they were/are much closer to cities and towns than in recent years. We’re not only losing timber and recreation areas, we’re losing structures and towns and evacuating tens of thousands of Oregonians. As of early September, if you look at the areas within the fire perimeters and those in the Evacuation 3 zones (full evacuation) they encompassed around 2 percent of the state’s population, and around 1 percent of total real market property value and employment. That’s a huge portion of the state to be fully evacuated.

More than one million acres have burned so far. We know fires burn in mosaics so there will be patchwork devastation across the state. Some stands of trees will be in good shape, while others will be gone. Some homes will remain standing, while others will be burnt to the ground. In terms of acreage and ownership, the following table comes from Mason, Bruce, and Girard, a natural resource consulting firm, from which Mark Rasmussen serves on the Governor’s Council of Economic Advisors. Our friends at the Department of Forestry have similar type numbers looking at ownership by fire, not by county.

Broadly speaking there are four main channels in which the fires will impact Oregon. There is the direct impact on sectors reliant upon the forests. There is the destruction of properties that will need to be rebuilt. There is the impact of the evacuations themselves. And then there is the longer-term implications, largely related to migration.

Let’s first look at the sectors that are impacted directly. This leaves to the side for today those sectors impacted by the smoke, where Oregonians couldn’t go outside for a week. But in terms of sectors reliant upon the forest for work, it’s 2-3% of the state’s economy. The timber industry — logging and the mills — account for the bulk of these figures. The potential impacts here are that harvest levels may be impacted or reduced for years to come, depending upon the level of devastation and ownership of the land, etc.

The other 0.5-1% of the impact comes from forest-based outdoor recreation. Overall BEA estimates indicate outdoor recreation is nearly 3 percent of Oregon GDP but half of that is the travel and tourism component (gasoline, lodging, food) and then the actual recreation portion includes things like water parks, festivals, tennis and the like. The hard thing to parse here are activities like cycling and boating. Clearly some of that is forest-based. I enjoy paddleboarding on lakes in the summer and the lakes are located in the forests. But what about fishing on the Columbia? Is that forest-based? And what is the breakdown between cycling around town, or commuting to work vs mountain biking in the forests? Clearly the available data overstates the forest component of outdoor recreation which is anything kinda related to being outside. So some very rough cuts of the data would indicate it is around half a percent of state GDP.

In terms of the destruction of property, what we currently know is the following, This is a very rough cut and estimate, but indicative of what we were looking at as we were adjusting our forecast at the eleventh hour.

Just over 4,000 residences have been burned. If you take median home value by census tract for the different fires and apply that to the number of homes, you get around $1.1b billion in total property values. Mike Cowles, the Lane County Assessor, was gracious enough to help me look at the properties impacted by the fires in his county. What it showed was among the residential properties within the evacuation areas, his data indicated the assessments were 50/50 in terms of the value of the land versus the value of the improvements (structures). So taking that 50/50 split and applying to the 4,000 homes indicates around $575 million in lost homes. Additional research from the Insurance Information Institute (III) shows that homeowners insurance typically includes coverage for personal belongings equal to 50-70% of the value insured of the structure. So, roughly, that’s another $340 million in lost personal belongings, bringing the total to nearly $1 billion. In looking at III research on wildfires, it indicates that during big wildfire years insurance seems to cover about 75% of the losses. I could not find a breakdown of residential vs nonresidential here but that does factor into those numbers. Regardless, the losses and devastation is big, and the final numbers will be even larger than this back of the envelope work from a few weeks ago. Plus none of this yet includes the commercial or industrial losses, or the value of the standing timber itself.

The next table shows what our office built directly into our forecast.

Our office included an additional 2,000 housing starts over the next 2 years. Now, we know we’ve lost more than 4,000 homes but we are only including 2,000. Why? One reason is these were ad hoc adjustments made at the last minute to the forecast and the estimates of the number of homes lost kept climbing by the day. That’s a factor. But also, two key questions relate to whether we will see every lost home rebuilt, and whether there is enough capacity within the construction industry to build an additional 4,000 homes in the months and years ahead. Will Oregon end up building all of the units? Probably. But we may need to reallocate construction capacity away from projects in Portland, Salem, Eugene, Medford and the like, and use those workers and materials in the rebuilding towns. To the extent that happens, then total construction industry production won’t increase as much given we will see some temporary reductions in the main cities until the rebuilding is complete.

The other direct impact our office built into the forecast was related to the Corporate Activity Tax. In the short-term we will see a boost to food and lodging sales associated with the evacuations, and the visiting firefighters helping to battle the fires. Additionally the rebuilding phase will result in an increase in the sales of construction materials, firm revenues and the like. All told our office increased the CAT forecast by $18 million total in 2019-21 and 2021-23 combined. However much of these impacts are in the short-term and will fade out in the year(s) ahead.

Finally, a key concern for the outlook remains any long-term implications from the fires. Our office previously wrote about the migration concerns and how that could impact the long-run outlook for the state.

The scariest potential impacts for Oregon is that fewer households and investments may be attracted to the region moving forward. Oregon’s primary comparative advantage remains its ability to draw skilled workers away from other states. To the extent that local quality of life has been reduced, or if Oregon is perceived as a riskier or costlier place to live and do business, this advantage will be less pronounced. Increased risk lowers growth prospects due to uncertainty and higher costs. If these fears are realized, our office’s long-run outlook would need to be lowered.

Over the summer, ECONorthwest released an economic analysis of Cascadia, which is a different type of natural disaster, but their report included a really good summary of the economic literature. Included there was an interesting paper by Boustan et al (2017) that examined county level impacts of natural disasters. One of the findings in the paper was that fires were associated with larger impacts on migration than most other types of natural disasters. That’s certainly the main long-run concern our office has. To what extent do residents impacted by the fire pack up and leave Oregon? To what extent do the fires deter other people from moving to Oregon in the first place due to the potential threat of fires? The answer here is unknown. Our office has not built in any sort of long-term impact to date, especially considering other climate-related issues likely indicate Oregon is relatively more attractive. Even so. here is how we wrote up one potential silver lining in the document:

Now, one potential offsetting factor for Oregon today is that most, not all, but most of the impacted and fire-ravaged communities are located within the Eugene, Medford, and Salem metro areas. Yes, these communities are largely smaller, and more rural in nature, but they are not far-flung nor geographically isolated. Given that the primary cities, and job centers have not been lost for the metros, it is likely that many residents of the devastated communities still have somewhat brighter job prospects and thus may be more likely to remain and rebuild. It remains too soon to tell the extent of the damage today. Longer-term effects are still to be determined, particularly should such fires become increasingly frequent across the West.

Our office will continue to monitor the available information and how it impacts the state’s economic and revenue outlook. The Governor has put together a Wildfire Economic Recovery Council which our office will help with as needed as well.

Posted by: Josh Lehner | September 25, 2020

Not Fun Friday: Low-Wage Workers and Income Disparities

One of the big takeaways from our latest forecast is the fact that the nature of this recession, combined with income inequality means that while there is considerable economic pain, we have seen hardly any in terms of actual state tax revenue collections. I just wanted to do a quick follow-up today given some new information.

First, our office has been publishing the following chart every month lately when the employment report is released. It is designed to to show that workers in lower-wage sectors have borne the brunt of the recession. We know that many consumer-facing industries are impacted the most by social distancing and the like. Even so, jobs in middle- and high-wage sectors are still seeing sizable losses, just not as severe as those in the lower-wage sectors.

The chart above is based on employment at the industry level and dividing the economy into thirds based on average wages by industry. While imperfect, this is what we have readily available at the state level. And it certainty shows indications of what is happening in the economy.

Well, yesterday, economist Ernie Tedeschi — a great follow on Twitter and one of the best researchers when it comes to digging into the microdata — followed up by looking at employment based on individual hourly wages and not industry averages. What Ernie found shows even larger disparities. Low-wage workers, regardless of industry, haven’t just borne the brunt of the recession, they have borne almost the entire recession alone. Employment among individuals earning more than $16 per hour is essentially all the way back to pre-COVID levels, while employment among individuals earning less than $16 per hour remains down 25-30%. This means the deep hole the overall labor market is in today is entirely due to the lowest-earning third of workers falling off a cliff while most everyone else is relatively OK.

Now, one reason our office has been focusing on the sector level view is because we have good data there. The data Ernie is crunching comes from the household survey. Here in Oregon our sample from the household survey is already pretty small. To get hourly wages from the survey you have to focus on what is called the out rotation group. When I filter the data for just those Oregonians with a job, in the out rotation group, with properly coded hourly wage information, the sample size is around 100 a month. It is very small. That means it is prone to a lot of noise.

Even so, I think the following chart clearly shows that what is happening nationally is also happening here in Oregon. High-wage jobs have seen essentially no impact from the recession. Now, whether the last month of data where low-wage jobs are up a bit and middle-wage jobs are down is truly representative, I cannot say. But in the larger picture, the trends are clear even with the noise.

Bottom Line: We know that the sectors most impacted by the pandemic are generally lower-wage industries. Such workers have borne the brunt of the recession to date. However, if both sets of data are correct and not revised substantially, what the findings show is that the impact of COVID-19 is even starker than first believed. The way the two data sets square is that low-wage workers in high-wage industries are the ones being laid off there, while high-wage workers in low-wage industries have been spared to a great degree. Regardless of industry, workers earning lower wages have borne almost the entire recession. Some of this is due to the nature of their jobs and occupations, the pandemic, their ability to work remotely, their overall work experience, their within firm work experience and the like. But regardless of the exact reason(s), the patterns are clear.

Posted by: Josh Lehner | September 23, 2020

Oregon Economic and Revenue Forecast, September 2020

This morning the Oregon Office of Economic Analysis released the latest quarterly economic and revenue forecast. For the full document, slides and forecast data please see our main website. Below is the forecast’s Executive Summary and a copy of our presentation slides.

The economy remains in a Great Recession-sized hole. However given the nature of the cycle to date, diverging trends have emerged. In particular, lower-income households have borne the brunt of the recession. The combination of higher-income households being less impacted to date, and the large federal income support means consumer spending and tax collections have held up much better than expected.

The strong economic growth in recent months is encouraging, as many workers on temporary layoffs are recalled. However, normally it takes a year or two for the recessionary shock to work its way through the economy. When the outlook darkens, firms usually don’t fire their workers immediately. Only over time, when the phone starts ringing less, do weak sales lead firms to cut back on parts and labor. These spending cuts in turn leads to lost income for suppliers and workers who reduce their downstream spending accordingly. This traditional recessionary dynamic is just getting under way, even though the labor market is improving as thousands of temporarily unemployed workers return to their jobs.

Overall the current state of the economy is much better than feared at the time of the previous forecast. But the economic outlook in the years ahead is only improved modestly. It takes time, even under the best of circumstances to regain lost ground due to recessions. 2020 so far is anything but the best.

In the near-term Oregon’s economy is impacted by COVID-19 and the wildfires that destroyed our communities. Over the long-term, Oregon’s ability to attract and retain skilled, working-age households is one of our comparative advantages. To the extent the pandemic, wildfires, or protests and clashes of violence impact this advantage remains to be seen, but they all represent downside risks to the outlook. On the other hand should telecommuting and remote work increase as a result of the pandemic and changing business practices, Oregon stands to take advantage.

Previously when Oregon faced double-digit job losses and unemployment, the recovery took five years once underway. All told, our office expects this cycle to be faster given the stronger economy before the pandemic and the somewhat limited amount of permanent damage to date. Expectations are Oregon’s labor market will return to health by mid-2023. Even so, growth is likely to slow in the months ahead as the easy economic gains related to the recalls play out, the loss of federal support weighs more on consumers, and concerns over the spread of the virus increases in the coming, colder months.

Despite the sharp reduction in economic activity, Oregon’s primary revenue instruments have continued to grow. Collections of Personal Income Taxes and Corporate Taxes both set record highs over the post-shutdown (March-to-September) period this year. Could it be the recession might not have a significant impact on state tax revenues? Of course not. However, the fact of the matter is that the economic pain has yet to be fully reflected in Oregon’s revenue data.

Timing is part of the reason. As is the unprecedented amount of federal aid. Although recovery rebate checks associated with the CARES Act are not taxable in Oregon, enhanced unemployment insurance benefits are. Around $170 million in personal income tax collections have already been withheld from unemployment insurance checks. However, to date, this is not far off of what was assumed in the June forecast. What was missing from the June forecast was the positive impact on tax collections associated with federal aid for businesses. Forgivable loans associated with the Payroll Protection Program, together with even larger industry bailouts for major corporations, have led to a surge in business tax liability. Ignoring the business income that flows through Personal Income Tax returns, federal business aid has increased traditional Corporate Tax collections by $200-$300 million.

Another factor supporting strong tax collections is the fact that high-income households have been relatively spared from economic losses to date. Given widening economic inequality, high-income households have an increasingly disproportionate impact on aggregate economic indicators like spending and income. This dynamic is even more pronounced for Oregon’s Personal Income Tax revenues given our progressive rate structure. However, even though high-income households have fared relatively well to date, the 5% net job losses we have already seen among high-wage industries are more than large enough to strain tax collections.

Finally, unexpected spillovers from the 2019 tax season have also boosted revenues in the current biennium. As year-end tax payments came in, both Personal and Corporate tax collections surprised on the upside. Unlike the traditional April surprise, however, this surprise did not come until July due to the fact that the tax filing deadline was extended. Tax returns processed so far do not reflect such strong liability growth in 2019. This suggests that the highest-income filers, who often file extended returns in the fall, earned more than other filers last year.

Due to the unexpectedly large flow of collections seen over the past year, the General Fund revenue outlook for the 2019-21 biennium is now no different than it was before the recession hit. Although the reduction in state revenues has been delayed, the pain will eventually be felt given the magnitude of the damage to Oregon’s labor market. With little change to the economic outlook, the September 2020 revenue forecast converges back close to the June 2020 forecast over time.

If the September 2020 forecast proves accurate, not only is the General Fund is in very good shape for the current biennium, but there will be additional revenues available to apply to 2021-23. Following the June 2020 revenue forecast, the Oregon Legislature met in a special session and enacted measures that filled the expected budget hole for 2019-21. As a result, the additional revenues in the September 2020 forecast are not needed immediately. Instead, an expected General Fund ending balance of $1.7 billion will be available to apply to the 2021-23 budget period.

See our full website for all the forecast details. Our presentation slides for the forecast release to the Legislature are below.

Posted by: Josh Lehner | September 17, 2020

Oregon Poverty and Progress, 2019 Edition

This morning the Census Bureau released the 2019 American Community Survey data. Normally this is the Super Bowl of socioeconomic data, and researchers mine it for months to better understand where we stand. But pardon my lack of enthusiasm this morning given *gestures broadly at everything.* Census data is always backward looking but is very important to keep track of. That said it feels even more so this week given the pandemic, recession, and wildfires. And it’s a shame really because, as expected, the 2019 data looks fantastic. We knew the economy has doing quite well right up until the pandemic hit, and this fact actually makes economists more optimistic on the recovery given there were no large macroeconomic imbalances. With that, the charts below highlight some of the major data points in the 2019 ACS data. We will post more in the future as we dig further into the data.

First, median household incomes in Oregon and the nation hit new all-time highs last year. The decade-long economic expansion was really bearing fruit in recent years as the economy strengthened and wages began to rise significantly. Oregon’s median income now stands 2 percent higher than the U.S. This is a touch lower than in 2018 as incomes rose slightly slower in Oregon in 2019 than they did nationwide, 5.7 vs 6.1 percent. That said, outside of the past two years you have to go back to the 1960 Census to find median incomes in Oregon that were higher than in the nation.

The underlying driver of income growth last year was earnings (wages). Yes, the number of workers increased, boosting incomes somewhat. However earnings per worker, especially for full-time workers, really drove the gains. Given that middle- and lower-income households really only have wages as their source of income, these wage gains in recent years are driving incomes higher for Oregonians. While higher-income households have fared better in recent years (decades), incomes across the board in Oregon are now higher than they were prior to the Great Recession, even after adjusting for inflation.

And these income gains drive poverty figures lower. Oregon’s 11.4 percent poverty rate in 2019 is almost a full percentage point lower than the nation’s 12.3 percent. This gap between Oregon and the U.S. is on par with what the state saw in the 1990 and 2000 Census data. You have to go back even further, to the heyday of the timber industry in the 1960s and 1970s to find a time when Oregon’s poverty rate was proportionately lower than the U.S. than it is today.

The good news here is that these income gains and poverty declines are seen among Oregonians of all races and ethnicities. The racial poverty gap remains. There is more work to be done to address inequities. But the good news is the racial poverty gap is now the smallest on record in Oregon, and poverty rates for Black, Indigenous, and People of Color have never been lower*, based on available data. But this also means that BIPOC Oregonians now face poverty rates on par with what white Oregonians experienced during the worst of the Great Recession. Like I said, a lot more work to be done.

Note: We will have more in our forecast document next week on how COVID-19 may or may not be changing some of these trends.

All told, Oregon experienced a strong economic expansion last decade, among the best nationwide. Importantly the economic growth translated into money in the pockets of everyday Oregonians. Our incomes had never been higher, and our poverty rates hadn’t been this low in decades. But we are now on to the next cycle where we are currently recovering from a global pandemic. Expectations are that this recovery will not take as long as the last one, in part because of that underlying strength in the economy we experienced up until a few months ago. This new 2019 data quantifies just how strong the economy was.

* Note that poverty rates for Black Oregonians increased in 2019, following a large decline in 2018. Overall, given Oregon’s small Black population, the data is noisy from year-to-year and the margin of error is relatively large. In the big picture, poverty rates for Black Oregonians have improved but remain higher than for any other race or ethnicity.

Posted by: Josh Lehner | September 15, 2020

Oregon Employment, August 2020

This morning we got the August 2020 jobs report from our friends at the Employment Department. Our office is working on finishing the next economic and revenue forecast, due out next Wednesday, September 23rd. As a result what follows are a few quick updates to the charts we have been tracking every month. Also stay tuned as this Thursday we will get the 2019 American Community Survey data. While Census data is always backward looking, it is even more so today given the pandemic and recession. That said it is always important to take stock of where we have been, and this dateset provides the best details available on the socioeconomic status of our community. Our office will offer some highlights later this week. Now on to the current state of Oregon’s labor market.

Job growth remained strong in August. The state added 11,300 jobs. Oregon has now regained 44% of its lost jobs. This is good news. The data is no longer apocalyptic; it’s just really bad. And while the economy overall is proving more resilient than expected, we still have a Great Recession sized hole left to fill. This will take time and growth moving forward will be slower. But these first few months of recovery have been encouraging.

One silver lining continues to be that much of the job loss and corresponding increase in unemployment still looks to be temporary. The headline unemployment rate is back down to 7.7%. The declines there are important and good news. That said, the core unemployment rate — a measure of permanent layoffs and damage — continues to be elevated. This is the part of the recovery that will take time, even as many of those on temporary layoff are recalled.

As always, a huge thank you to Tracy Morrissette over at the Oregon Employment Department for his great work digging into the detailed data so we can look at core unemployment in Oregon. Thanks Tracy!

Finally in a good news/bad news update, we continue to see a split in labor market outcomes. Low-wage industries suffered the most during the shelter in place phase of the cycle, given the sudden stop nature of the shutdown. It is here that much of the job growth in recent months is taking place. This is good news as those workers are brought back following temporary layoffs. The bad news is that middle-wage sectors are only seeing very modest gains and high-wage sectors are not seeing any growth in recent months. They may not have suffered as much to date, but they’re also not bouncing back. This is a concern and likely speaks to more permanent layoffs in these industries. Keep in mind that job losses of 5% are more severe than Oregon suffered in the 1973, 1990, and 2001 recessions.

All told, Oregon’s economy continues to recover and heal. Employment is up and unemployment is down. Stay tuned for more on the outlook and where the economy goes from here with next week’s forecast release.

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